Investors Should Be Aware Of Inversions

Posted on Tuesday, November 11, 2014

Some U.S. companies are using corporate inversions to reduce their taxes. Investors in companies that do an inversion may find that their own taxes are increased.

When the U.S. company becomes the subsidiary of the foreign company, it issues replacement shares. Typically, the new shares are equal to the former shares but no cash is involved. As a shareholder, you're required to recognize a gain on the exchange of stock even though your ownership position remains the same. The gain is the amount by which the value of the stock on the inversion date exceeds your basis.

Investors should also be aware that inversions can affect the amount of capital gain reported to you by mutual funds you own if companies in the fund's portfolio choose to invert.

Though not all mergers will create taxable income, keeping an eye on your portfolio can prevent tax bill shock when you file your 2014 federal income tax return.

Posted in Tax Topics For Individuals

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.

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